Shares of financial stocks are not participating in Thursday's Fed-inspired rally. A concerned U.S. Federal Reserve Bank cut its forecasts for further interest rate increases from two to zero on Wednesday. Fed watchers interpreted the dovish Fed move on Wednesday as a signal of concern over U.S. growth prospects amid worries in Europe, and to some extent, China. YIELD CURVE NARROWS: As longer-term bond yields decline, the yield curve flattens due to the narrowing of the gap between yields on short-and long-term treasuries. Banks depend on profitability from lending at the long term rate and borrowing at the shorter term rate. The profitability of lenders typically declines with a flattening of the yield curve. "Yield curves are responding to what they see, to what I believe is a global economic slowdown," said Peter Boockvar, Chief Investment Officer at the Bleakley Advisory Group, on CNBC earlier. BANKS ARE KEY ECONOMIC INDICATOR: In an earlier Wall Street Journal article, Ed Cofrancesco, CEO of International Assets Advisory, said, "banks are key components to our economy, so much that if they don't do well, they're a drag on the market and the economy as a whole." Publicly traded companies in the space include Bank of America (BAC), Citi (C), Goldman Sachs (GS), JPMorgan (JPM), Morgan Stanley (MS), U.S. Bancorp (USB), and Wells Fargo (WFC).

Deutsche Bank's (DB) supervisory board debated the merits of a potential tie-up with Commerzbank (CRZBY) for three hours at a meeting on Thursday, Reuters reports, citing a person with direct knowledge of the matter. Deutsche Bank CEO Christian Sewing told the board about the possible deal and said that the bank was at the start of doing due diligence, the report says. Reference Link

Citigroup intends to sell several tons of gold placed as collateral by Venezuela's central bank on a $1.6B loan after the deadline for buyback them back expired this month, a setback for President Nicolas Maduro's plans to hold onto the nation's fast-shrinking reserves, Mayela Armas and Corina Pons report, citing sources. Under the terms of the 2015 pact with Citibank, Venezuela was set to repay $1.1B of the loan on March 11, and the remainder of the loan comes due next year, the authors say, citing four sources familiar with the situation. The American lender plans to sell the gold as a guarantee, which has a market value of about $1.358B, to recover the first tranche of the loan and intends to deposit the excess of approximately $258M in a bank account in New York, Armas and Pons noe, citing two of the sources. Reference Link

Deutsche Bank's (DB) merger discussions with Commerzbank (CRZBY) have put pressure on its 10,000 U.S. employees, with some concerned a transaction could pressure Deutsche to further shrink or even dispose of its U.S. businesses, Reuters' Matt Schuffham reports, citing three employees. The future of Deutsche Bank's U.S. trading and investment banking presence was already in question, with certain investors calling for additional cuts, Schuffham notes. "We don't know what's going on. Everything is up in the air," one senior employee within the bank's U.S. equity sales business told Reuters. Reference Link

Defensive option play opened in Deutsche Bank. Shares off 15c to $9.90 and 10K Jul 11 calls sold at 19c to buy 10K Jul 6 - 8 put spreads for 37c. The three-way, for 18c, opens all three legs and offers a max payout on a 33% move to $6 or less through the July expiration. It captures one earnings cycle in late-April and the interest comes after the bank acknowledged Sunday that it is exploring a merger with Commerzbank.